HMRC have won in a court case regarding a tax avoidance scheme involving US investment bank Morgan Stanley and FTSE 100 company Land Securities. HMRC’s victory will save the UK at least £60 million.
Under the scheme, Land Securities plc sold shares in one of its group companies to a Cayman Island subsidiary of Morgan Stanley. Morgan Stanley then inflated the value of the shares by pumping money into the subsidiary before the shares were bought back by Land Securities at the inflated price. Land Securities then claimed that they had made a “loss” of £200m which they, in turn, used as a deduction against tax.
Despite the Land Securities company claiming in court that disallowing the loss would be unfair, as they would be out of pocket if they sold the shares in the future, the tribunal did disallow the loss.
In reference to the Morgan Stanley case, Exchequer Secretary David Gauke said: “At a time when we must all pay our fair share, it is increasingly unacceptable for individuals and businesses to try to avoid or evade paying their taxes”
HMRC’s Director General for Business Tax, Jim Harra, explained that the scheme Morgan Stanley and Land Securities had carried out was ‘flagrant tax avoidance that provided finance to a FTSE 100 company that appeared cheap because the UK taxpayer was expected to pick up a £60 million bill’. He stressed that HMRC will not tolerate tax avoidance stating that by taking Morgan Stanley to court they are “sending a clear message that indulging in tax avoidance is now a very high risk and expensive strategy, because HMRC will continue to challenge avoidance at every turn.”
